http://news.investors.com/ibd-editorials-viewpoint/012413-64...

Despite new evidence the Community Reinvestment Act led to riskier lending and played a key role in the subprime mortgage crisis, the Obama administration is broadening the anti-redlining regulation's authority and scope, spooking bankers.

A recent study by the National Bureau of Economic Research, the nation's pre-eminent economic research group, states that the CRA "clearly" had a major impact on the flood of subprime loans made in the late 1990s and 2000s, which directly led to the housing crisis.

By quietly expanding the regulation, analysts say President Obama is picking up where President Clinton left off in April 1995, when he rewrote rules for what had been a largely toothless law as first drafted in 1977.



....Added Allison, who now heads the Cato Institute: "The default rates on these low-income loans are extraordinarily high."

Still, the Obama administration wants banks to step up approval of such low-income mortgages. And it's using the CRA to spur more lending, including:

• Forcing banks through threat of prosecution to expand their CRA assessment areas to include inner-city areas blighted by subprime foreclosures, where they are compelled to invest in new brick and mortar.

Many banks, in fact, are under direct federal orders to open new branches or ATMs in high-risk and unprofitable areas of Detroit, St. Louis and other cities hit hardest by the recession.


Never let a crisis go to waste and create and milk another one if you can. Whoopee, here we go again! Wonder if those greedy bankers will get the blame AGAIN?

Liberalism is a mental disorder.

Added Allison, who now heads the Cato Institute: "The default rates on these low-income loans are extraordinarily high."

They're high because the owners are walking away from their worthless underwater properties, not because of the underwriting guidelines that granted the owners loans to begin with.

They're high because the owners are walking away from their worthless underwater properties, not because of the underwriting guidelines that granted the owners loans to begin with.

When banks are pressured to make loans to people they would otherwise not make loans to because they don't qualify for fear of being charged with redlining, then the banks were coerced into making loans they knew were not good risks. So the banks decided to bundle and sell those loans, many of which were to the guaranteed Freddie and Fannie.

Yes, they walked away from those homes because they had no skin in the game and never should have been able to purchase a home in the first place. Notwithstanding the underwriting guidelines which were rendered meaningless in light of government coercion, the liberal, feel-good, everybody-should-own-a-home CRA's good intentions led to and was instrumental in causing one of the largest financial crises in history.

You make loans to people who have proved to have a steady income, who have a history of paying off their previous loans on time, and have the capacity and character to continue to do so. When the government says those long-standing qualifying guidelines should be ignored so that minorities can particpate in home ownership, well, we shouldn't be surprised at the results, the bubble in housing prices and the bursting of that bubble and the havoc it wreaked upon our economy. All because of liberal big-government compassion.

The road to hell is paved with good intentions.

The road to hell is paved with liberalism.

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There, that's what you really meant to say.

CC:"They're high because the owners are walking away from their worthless underwater properties, not because of the underwriting guidelines that granted the owners loans to begin with. "


Same thing.


The bank loses its shirt.

The bank didn't make the loans go down in value. That was probably obvious from day one that if you invest in over priced property, the bubble will bursts and you'll get left holding what's left.....

No sane bank would be loaning money in these areas.

And few properties are 'worthless'. they are simply 'worth less'.

Obviously, the underwriting guidelines failed too, since many people who are underwater didn't walk away. They toughed it out.



t.

The road to hell is paved with liberalism.

-------------------------------------------------------------

There, that's what you really meant to say.
_____________________________

Actually, I have been watching recently, and I have to disagree with you Wolvie

The road to hell, is paved by well meaning people, many of them conservative. all of them hard working, and with a huge majority of them disagreeing with the road even being built.

But those folks, do not want to believe the evil motives and assume it will work out, or behave in a cordial manner because that is what civil folks do

The road to hell is paved with good intentions, construction however is supervised by con-men known as liberals

Obviously, the underwriting guidelines failed too, since many people who are underwater didn't walk away. They toughed i
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IMO, part of the disaster, is a large core principle that is ignored by the Dem Party in general

Human nature.

Yes too many banks made loans because there was a combination of absurd pressure and a reasonable guarantee of payment even in foreclosure.
BUT, we had too many people who did not move into their dream, but moved into their investment or moved in because it was about the same as rent.

Folks who saved for years for a 20 percent down payment do not walk away because their house is temporarily underwater -- they are living in their dream. It may not be wise not to walk away, but they are vested far more than cash value.

The same goes for so many liberal initiatives. Believing the incentives of profit do not count, or that giving training to folks who never cared enough to do squat foe themselves is going to create a motivated work force, or that giving someone a nicer apartment is going to make them care because it is nice.

Liberal policies fail, because they ignore the human element -- that may be because liberals aren't human-probably worth considering.

It looked to me like the California Model was the future.

Get to move in while your loan is being approved.
Get turned down, but, continue to live in the home without paying any mortgage or rent until they force you out in a year or more.
FREE HOUSING!

Cheap housing.

Someone in Boca Raton, FL, a 26 year old, paid delinquent taxes and such on an abandoned, bank held Waterfront MANSION!
Moved in and is squatting. No payments or rent. Legal.

AWEsome like OWEsomeone....

When banks are pressured to make loans to people they would otherwise not make loans to because they don't qualify for fear of being charged with redlining,

CRA loans aren't new. They weren't a product of the bubble--they've been around since 1977--nor did they deteriorate as the result of "pressure." Since I originated dozens (and dozens) of these loans, I know what I'm talking about, whereas "analysts" may not even know the history or guidelines of CRA loans; only the outcome within the scope of the financial crisis.

The guidelines weren't loose at all:

-- full doc only
-- maximum 40% DTI (debt-to-income)
-- no negative amortization
-- no prepay penalty
-- fully amortized (no interest only)
-- 30 year FRM and 5 year ARM only

Compare this to so called liar loans and, well, there is no comparison. Did the housing crash bring down CRA loans, too? Of course. The housing crash brought down even 20% down, 750 FICO, full doc borrowers.

Please don't try to explain the housing bubble to me. I was there. I watched my pipeline evaporate within weeks as 388 lenders imploded since 2006.

http://ml-implode.com

I fielded calls from worried borrowers and am even now trying to find solutions for borrowers who put 20% down and would love to walk away from under water properties if there were no credit implications. Many just say, "Phuque it. I don't need any more credit, anyway."

"Strategic defaulting" didn't become reality by unsophisticated borrowers. They became strategic because 20% down borrowers saw lemons and sought to make lemonade.

http://realestate.aol.com/blog/2012/10/08/more-americans-con...

Folks who saved for years for a 20 percent down payment do not walk away because their house is temporarily underwater

Nonsense.

Being in the mortgage business, I'm very close to this situation. I personally hear and also read stories all day/every day on various discussion boards about why people walk away. Sure, some people stay in their under water homes, pay no attention to the bad news and keep on paying--EXCEPT WHEN the news does filter into their brains that there are lower interest rates to be had, but they can't get one because their friggin' house is under water.

Then they start thinking strategically...

-- Can I get a better house now for less money?
-- How can I do this?
-- What are the implications?

And what's "temporarily?" We've been in this situation for six years!

Recently I heard this fellow speak about CA real estate. He's of the opinion that CA real estate will appreciate 20% in 2013 alone!

http://www.thenorrisgroup.com/training/speaking-engagements-...

He made a compelling argument, but the California Association of Realtors--historically an overly optimistic group--predicts appreciation of 5.7%.

http://www.sfgate.com/realestate/article/Sound-off-What-s-in...

This idea that "saving for years" to put 20% down nails people into their homes is simply not true. Some people may stick, but many people don't--20% down or not.

Get to move in while your loan is being approved. Get turned down, but, continue to live in the home without paying any mortgage or rent until they force you out in a year or more. FREE HOUSING!

If you've heard of a situation like this, it's an anomaly, not business as usual. People don't get to move into houses while their loans are in process.

Someone in Boca Raton, FL, a 26 year old, paid delinquent taxes and such on an abandoned, bank held Waterfront MANSION! Moved in and is squatting. No payments or rent. Legal.

Again, a once-in-a-lifetime story. Do you know how competitive tax liens sales are? Just try to buy a house for just the amount of the tax lien. Pffft! Wouldn't happen.

Someone in Boca Raton, FL, a 26 year old, paid delinquent taxes and such on an abandoned, bank held Waterfront MANSION! Moved in and is squatting. No payments or rent. Legal.

Again, a once-in-a-lifetime story. Do you know how competitive tax liens sales are?

It doesn't say he bought it in a tax lien sale. It says he paid the delinquent taxes. Since he did that, there subsequently *would not be* a tax lien sale, and *would not be* a new owner showing up to take possession of the property subsequent to such a sale.

The bank that owned the property wasn't paying the taxes and presumably wasn't maintaining it, so no reason to expect anyone from there to show up.

The foreclosed former owners were gone, they wouldn't be showing up.

The neighbors? They notice of course, but if the guy paid the delinquent taxes, moved in, and started doing basic exterior maintenance, they were probably glad to have him and never questioned the obvious assumption that he had bought the place. (Plus, the new "owner" has a good incentive to not attract official attention and investigation, so probably is law-abiding other than the little matter of living on someone else's property without their permission.)

I doubt that the utility companies check ownership records and verify rentals with the owners - if they get paid for the services they provide, they are happy.

And in some states, if for a sufficiently long time the actual owner neglects and abandons a property but someone else takes up the responsibilities of ownership, that someone-else BECOMES the owner.

The risk, of course, is that a week after he moves in the bank MIGHT send someone around to inspect the property, or MIGHT sell it to someone else who wants to move in, in which case the guy has to move a second time and probably loses the money that he paid on the back taxes.

I am aware of when the CRA was created. I'm not speaking to your personal experience or questioning your credentials or trying to explain the housing bubble to you, I am merely expressing my opinion based upon what I have read about the CRA. My point and what I have concluded is that the government created the climate which, over time led to both the bubble and the financial crisis - it wasn't the greedy bankers or the free market or because there was too little banking regulation. And the CRA lending standards were relaxed (forced upon banks)and there was pressure on some banks to have over 50% of their portfolios in risky loans made to lower income folks. The CRA was one of the primary government policies which led to the financial crisis. This guy says it much better than I can:

http://www.aei.org/article/economics/fiscal-policy/cause-and...

The current financial crisis is not--as many have said--a crisis of capitalism. It is in fact the opposite: a demonstration that well-intentioned government intervention in the private economy can have devastating consequences.

The crisis has its roots in the U.S. government's efforts to increase home ownership, especially among minority, low-income, and other underserved groups, through hidden financial subsidies rather than through direct government expenditures. Instead of a government subsidy, say, for down-payment assistance to low-income families, the government used regulatory and political pressure to force banks and other government-regulated or -controlled private entities to reduce lending standards, so more applicants would have access to mortgage financing.

The two key instances of this policy are the Community Reinvestment Act (CRA), adopted in 1977, and the affordable-housing "mission" adopted by Congress in the 1990s as a responsibility of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Amendments to the CRA in the early 1990s pressured banks into making loans they would not otherwise have made. Together, the tighter CRA requirements and the affordable-housing regulations imposed on the GSEs substantially reduced the standards that had to be met to qualify for a mortgage. The number of CRA loans was not large, but they required banks to devise ways of lending to people who would not previously have qualified for a mortgage. Once Fannie and Freddie began accepting loans with low down payments and other liberalized terms, the same unsound standards were extended to borrowers who could have qualified under the traditional underwriting standards. In addition, federal regulations encouraged bank lending for housing in preference to other lending, and tax policy favored borrowing against (and thus reducing) the equity in a house.

CRA

....New rules were adopted in May 1995 that were phased in fully by July 1997. These rules attempted to establish objective criteria for determining whether a bank was meeting the standards of the CRA, taking much of the discretion out of the hands of bank examiners. "The emphasis on performance-based evaluation," writes A.K.M. Rezaul Hossain (2004, 54), "can be thought of as a shift of emphasis from procedural equity to equity in outcome," according to which it was no longer "sufficient for lenders to prove elaborate community lending efforts directed towards borrowers in the community"; instead, they had to prove "an evenhanded distribution of loans across LMI [low and moderate income] and non-LMI areas and borrowers."

In other words, it was now necessary for banks to show that they had actually made the requisite loans, not just that they were trying to find qualified borrowers. To help achieve this result, one of the standards in the new regulations required the use of "innovative or flexible" lending practices to address credit needs of LMI borrowers and neighborhoods (ibid., 57). This clearly meant the relaxation of lending standards, despite the original language about safe and sound practices.

You can read the rest. There is no doubt that the CRA contributed to the financial crisis, reduced lending standards which led to riskier lending by banks,(resulting in greater defaults) and provided the opportunity for banks to sell those risky loans to GSE's -FM and FM- who bought half of all CRA loans(government can't go broke)as if this was the security on those loans. The government pushed these CRA loans with relaxed underwriting standards and subprime features - all of this Paul Sperry points out in his article in IBD based upon a recent study.

These studies and articles only serve to confirm what I already thought about the CRA's contribution to the financial crisis. I am stating unequivically, IMNSHO, we would not have had the financial crisis were it not for the CRA - period - and how its incremental unintended consequences over time created a whole lot of collateral damage and gave incentives for all parties involved to behave badly and irresponsibly. And they would not have acted thusly if the CRA never came to fruition.

It doesn't say he bought it in a tax lien sale. It says he paid the delinquent taxes. Since he did that, there subsequently *would not be* a tax lien sale, and *would not be* a new owner showing up to take possession of the property subsequent to such a sale.

Wait a minute. Something's missing here. Why would he bother to pay the delinquent taxes? Paying the delinquent taxes doesn't confer any legitimate status on a squatter.

Why didn't he just move in? A squatter is a squatter.

This idea that "saving for years" to put 20% down nails people into their homes is simply not true. Some people may stick, but many people don't--20% down or not.
______________________________

Though I am sure some people walk away, I am equally sure that it is so small a minority as to be meaningless.

What does waling away mean?

Well, if you assume as you say some do, that the housing market is about to recover, you are walking away from a wimming situation since you are SOL for 7 years.

You are walking away from your dream, if you saved for years to get into a house, you are going to leave for an apartment and start saving again to rinse and repeat? Because you believe that in 7 years the same house will be worth less than it is today? Because that is the bet you are essentially making.

When you walk away, you walk away from more than the 20 percent you are vested in and the mortgage payment that is on a higher amount for a few years, you are walking away from all the fees you paid as well to get there.

If you saved that money and moved in strictly for fiscal reasons you are a serious minority. Not non-existant but a fairly small subset of homeowners that made the 20 percent down payment.

I do not believe that the group that has a 20 percent down payment vested is anywhere near the risk of others today in this specific situation, not that they are making a fiscally prudent move if they want a house in 7 years -- unless they believe that houses in 7 years will be worth less than they are today. I think that subset is very insignificant.

Now do I think there are some that are tossed out because they simpy can not afford the house and could at the lower rates? Sure another small but not non-existent subset

My point and what I have concluded is that the government created the climate which, over time led to both the bubble and the financial crisis - it wasn't the greedy bankers or the free market or because there was too little banking regulation.

I have the opposite opinion. It was gambling by bankers with other people's money via credit derivatives that was directly responsible for the crisis...and there's more crisis coming.

http://moneymorning.com/2011/10/12/derivatives-the-600-trill...

Credit derivatives aren't regulated at all. Total lack of regulation of this dangerous financial instrument is what got the ball rolling. Eventually, coupled with mortgage products that were simply crazy on their collective face, the risk bubble could no longer be contained.

The Agencies (Fannie Mae and Freddie Mac) and FHA were slow to join the blooming bubble--Fannie/Freddie because they eventually offered stated income loans. FHA never deviated from their long-standing guidelines, which have always been loose relative to conforming. Neither did the CRA.

For more insight, Frontline just did an excellent program on the banking crisis. Sorry, but it was America's bankers who are to blame.

The Untouchables--Frontline investigates why Wall Street’s leaders have escaped prosecution for any fraud related to the sale of bad mortgages.
http://www.pbs.org/wgbh/pages/frontline/

You need to hang out on this discussion board for an eye-opening bird's eye view of why people do or do not walk away.

http://www.loansafe.org/forum/

It doesn't say he bought it in a tax lien sale. It says he paid the delinquent taxes. Since he did that, there subsequently *would not be* a tax lien sale, and *would not be* a new owner showing up to take possession of the property subsequent to such a sale.

Wait a minute. Something's missing here. Why would he bother to pay the delinquent taxes? Paying the delinquent taxes doesn't confer any legitimate status on a squatter.

Why didn't he just move in? A squatter is a squatter.

Well, if the property is sold in a delinquent-tax auction, there's a high likelihood that the buyer will come by (or send someone by) to take possession and start doing SOMETHING with the property.

Then the squatter will (eventually, after some expensive legal proceedings) be forced to move out.

Whereas if the squatter pays the delinquent taxes before the property is listed for auction, it doesn't get listed and there won't be a new owner.

If the existing owner is obviously neglecting the property, and is a bank, they probably aren't going to show up. And if bank-owned properties are not selling well in the area and the one the squatter has picked isn't even listed with realtors, the bank isn't likely to sell it to an interested owner.

(For that matter, in those circumstances the squatter is probably protecting the bank not only from having to pay the property taxes, but from being fined for lack of maintenance. They might choose not to shove him out, but rather to pretend they don't know he's there, until the market changes - a risky strategy because no doubt if he can prove they knew he was squatting in their house and did nothing about it, it gives him more legal leverage.)

Perhaps he's not a stupid squatter. Doesn't a squatter gain legal title after a period of time if no one comes forward? And the leverage angle is interesting.

Well, if the property is sold in a delinquent-tax auction, there's a high likelihood that the buyer will come by (or send someone by) to take possession and start doing SOMETHING with the property.

OK, so he snatched the property from the jaws of a tax lien sale. But you said there was no tax lien, so what exactly did he do? Perhaps he followed the property and paid the delinquent taxes before the delinquent taxes turned into an actual tax lien, thereby arousing the interest of tax lien investors.

Still, how long did he live in the property before he was discovered? Not long, probably.

"It doesn't say he bought it in a tax lien sale. It says he paid the delinquent taxes. Since he did that, there subsequently *would not be* a tax lien sale, and *would not be* a new owner showing up to take possession of the property subsequent to such a sale." - warrl


I saw that on TV this morning. I think NBC Today show. They said the taxes on that property are like $39,000/year! Who the hell can afford that? I almost had a heart attack when they said that.

Me thinks this kid won't be in that house long. No way can he afford $39,000/year property taxes.

Art

"Perhaps he's not a stupid squatter. Doesn't a squatter gain legal title after a period of time if no one comes forward? And the leverage angle is interesting." - Josh


The property taxes on that house are unbelievable. No way could we afford them. From the looks of the kid (saw him on TV this morning) neither can he. Not sure what kind of game he's playing?

Art

Yeah, something's missing from this story, I think.

Credit derivatives aren't regulated at all. Total lack of regulation of this dangerous financial instrument is what got the ball rolling. Eventually, coupled with mortgage products that were simply crazy on their collective face, the risk bubble could no longer be contained

Call me crazy, but why are people investing in things they don't understand? Somehow, the gov't is supposed to save the investors from themselves?

Call me crazy, but why are people investing in things they don't understand?

Exactly. The government didn't have anything to do with CDOs (credit default options).

Call me crazy, but why are people investing in things they don't understand?

Exactly. The government didn't have anything to do with CDOs (credit default options).
__________________________

Except for creating the situation that made them viable and worth doing

Sort of like the government had nothing to do with companies providing insurance rather than folks buying their own. They just created an environment where it became a viable or preferable move.

At the heart of many really stupid decisions is a desire to eal with an environment that is silly and which was created by do good government.

Except for creating the situation that made them viable and worth doing.

The goverment can't see into the future. How is the government supposed to know what companies are doing behind the scenes? What schemes they're concocting? Credit default options is one of those schemes.

Sorry...but in this case, Wall Street abused the free enterprise system. Now government is responding with a vengeance and making Wall Street miserable with the Dodd-Frank Act--2,900 pages of gobbledegook that's being rolled out piece by piece, all of it oppressive and inflexible.

Paybacks are hell, oh crooks of Wall Street.

Call me crazy, but why are people investing in things they don't understand?

People tend (not totally reliably) to not invest in things that they THINK they don't understand.

But if they think they understand it, they are rather more willing to invest. Even if their "understanding" is completely wrong.

Pride is an issue, too, I think. The hotshots on Wall Street don't want to admit they don't understand something, so they nod and allow young punks to lead them astray.

http://www.nytimes.com/2008/01/25/business/worldbusiness/25b...

Partial explanation for Wall Street meltdown here. (Caveat: loan originators in the trenches sold only what was offered to them. We created nothing.)

The Untouchables: FRONTLINE investigates why Wall Street’s leaders have escaped prosecution for any fraud related to the sale of bad mortgages.

http://www.pbs.org/wgbh/pages/frontline/untouchables/

The goverment can't see into the future. How is the government supposed to know what companies are doing behind the scenes? What schemes they're concocting? Credit default options is one of those schemes.

Government is perfectly capable of asking economists and psychologists what incentives a possible change in law or policy will create.

When California was drafting its "deregulation" of it electrical-power network, economists looked at the draft and predicted a number of abuses that would be perfectly legal under the proposed new rules and would create severe financial difficulties for California utilities. They enacted the law anyway. Those abuses occurred and several California utilities had severe financial difficulties.

When Obamacare was being drafted, people looked at pieces of the draft as they were released and predicted that medical-care insurance prices would rise and doctors would retire at a higher rate. Some went so far as to predict that a lot of part-time employees would see new limits on the hours they would be permitted to work and some full-time employees would be forced to either go part-time or find new jobs. That's happening.

It doesn't take a Ph.D in economics to determine that if you demand banks make mortgage loans to people who don't meet normal lending criteria, the banks will be making lower-quality loans and more of those loans will go into default. Or that the additional money flowing into mortgages will drive housing prices up. Or that the bankers will seek ways to protect themselves from the mortgages they wouldn't have made on their own by foisting the risk off on someone else (and preferably getting that someone else to pay them for the privilege). But the government failed to make any allowances for these entirely predictable things.

It doesn't take a Ph.D in economics to determine that if you demand banks make mortgage loans to people who don't meet normal lending criteria, the banks will be making lower-quality loans and more of those loans will go into default.

That's not what happened.

Government can't make Wall Street act against its own self-interest.* If Wall Street didn't want to make low quality loans, they would not have made them. They in fact made them because of credit default options--STRICTLY a Wall Street invention--but not invented as a result of government initiatives to increase home ownership. CDOs were invented to earn more money for Wall Street.

* Right now, the guidelines for Agency loans are pretty straightforward. "Send us X, Y and Z and we'll reimburse you for your loan." But banks now have "overlays" that increase the amount of paperwork required by banks above and beyond what's required by the Agencies. Again, no one can make Wall Street act against its own self-interest.

It doesn't take a Ph.D in economics to determine that if you demand banks make mortgage loans to people who don't meet normal lending criteria, the banks will be making lower-quality loans and more of those loans will go into default.

That's not what happened.

No matter how much the fact say it happened, the theory says it wasn't supposed to, so it didn't.

Government can't make Wall Street act against its own self-interest.*

No, but government can alter the environment so that it is in Wall Street's self-interest to do things that in a rational environment would be obviously unwise.

No, but government can alter the environment so that it is in Wall Street's self-interest to do things that in a rational environment would be obviously unwise.

They're "altering the environment" now and, guess what? Consumers are paying the price. The costs involved in obtaining a mortgage have increased 50%. Fees...fees...fees... Do you really think Wall Street is going to absorb the cost of compliance? Not a chance.

Did Sarbane-Oxley stop the crooks on Wall Street? Nope.

Do you think the Dodd-Frank Act is going to stop the crooks on Wall Street? I doubt it.

That's the thing about crooks, they're always one step ahead of the po-leece.

The property taxes on that house are unbelievable. No way could we afford them. From the looks of the kid (saw him on TV this morning) neither can he. Not sure what kind of game he's playing?

Art


How can you tell by looking at someone what they can or can't afford?

"How can you tell by looking at someone what they can or can't afford?" - andrew


I find it difficult to believe a squatter would have the money to pay $39,000/year in property taxes? I think that is what they said on NBC they were?


Art